Economic Analysis of Cyber Risk for Financial Institutions

– Avisha Gupta, Dr. Chitra Saruparia , Dr. Arun Kumar Giri,

Cyberattacks have surged rapidly during the previous five years, and cybersecurity experts anticipate one attack every 11 seconds by 2023. Financial stability is under risk owing to the ease with which attackers can cause massive upheaval to the IT infrastructure technology systems utilised by banking firms. Cyberattacks and data breaches have risen from being an IT unit concern to being a key risk management issue for all financial institutions. The importance of safeguarding information systems to maintain commercial and financial activity in a firm has grown in the wake of the COVID-19 pandemic. By analyzing the 10-K filings of the US-listed firms and statistics on cybercrimes, the objective of this study is to propose a novel cyber risk measure for publicly traded US firms. According to our analysis, the financial sector is unprepared for such attacks, and the international community is responding in a disjointed fashion. Our measure’s time-series properties correlate with cyberattacks, as indicated by a 0.83 positive correlation between our measure and the annual cyberattack percentage. The study is a step towards developing a standardized global cyber risk measure for the banking industry.

Keywords: Cyber-incidents, Operational risk, Basel Committee, SEC Edgar, Advisen data, Cybersecurity risk measure, National Cyber Security Index, Banking industry, Technology advancement, Cyber risk insurance.

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